The group wants to be a 100% ‘electronic’ company by 2005 with all transactions with customers
and suppliers being conducted online. The group also thinks that in order to promote e-commerce in
China, it needs to set a good example of using information technology itself. In addition, the
company also hopes that its IT services business will be engaged in building e-commerce
infrastructures. Currently, the contribution of the group’s three businesses to revenues is rather
unequal; however, management anticipates that in the near future each business—distribution of IT
products; IT-services; manufacturing and distribution of networking products—will contribute
equally to the group’s revenues.
Regarding the group’s long-term strategy, it envisages that “informatization” will proceed along four phases:
1. Construction of basic facilities including PCs and networks linking them
2. Creation of “electronic enterprises,” including enterprise systems such as ERP systems
3. Building B2B platforms
4. Construction of the network society (including B2C e-commerce)
Management hopes to complete the first two steps within five to eight years with regard to the general corporate landscape in China. Currently, very few companies have implemented an ERP system in China. Many companies’ information systems are still paper-based with computers generally used for supporting financial accounting and inventory management, albeit on a rather rudimentary level. Thus, the group sees its mid-term future mainly in helping other companies to complete the first and second phase of the whole ‘informatization’ process via selling IT products (first phase) and IT services (second phase).
Of course, many companies hope to be involved in this process as providers of IT products and services, especially in the wake of China’s WTO accession. Guo Wei comments on this event:
There are both good news and bad news for our company after [China’s] entering WTO.
First, many foreign products, especially IT products, will be imported which require
distribution services. Second, Chinese companies’ demand for IT products will increase. Third,
foreign IT service companies which will be stronger competitors will enter China. So the
competition will be fiercer. IT services must be localized, however, so there is a time lag for
them before really competing with us. Fourth, the true challenge is whether we can improve
our management to international standards during the time lag. Upon entering WTO, the
management level and the business model must become global ones though we can still say
our market is somewhat specific.
The group does not expect to have one single competitor in the future; rather, there will be different competitors in each of its three main businesses. Regarding the IT distribution business, Guo Wei comments:
We are the biggest in this field. We can always run a little faster than others. … After nearly four years, we went ahead of our competitors with this little bit faster speed.
The platform strategy is seen as a major competitive advantage. Guo Wei explains:
The relationship between platforms and business units is like that between airports and airline companies with the airports providing services to the airline companies and each keeping separate accounts. Platforms work only as a service center.
Moreover, management considers its credit management abilities a major asset in the coming battle with foreign companies, as Liu Shengrui explains:
Digital China is a localized company. The market in China is not [yet] mature. The bad debt
ratio is very high. For example, no foreign company will make credit sales to our agents.
However, if you refuse to do this, you cannot go ahead and even cannot survive. So we must
make credit sales to them and also make some supervision and establish debt collection
procedures. Foreign companies do not have such procedures and experiences, so they must
rely on us to penetrate the China market. They do not understand the credit situation and
nature of the clients. In contrast, we have operated in such a market for more than ten years.
We know much more about the current situation, the market, and regulations in China. We
have established a credit management system, and we know how much credit sales we should
make and how to collect the debts. Foreign companies cannot do this. … If foreign companies
do some evaluation for these [customer] companies, maybe none of them can pass. For
example, they ask for your financial statements, your historical sales figures, and your
registered capital. In foreign countries, when a company is registered, it should have the
registration capital, otherwise someone else should guarantee for it. This is seldom the case in
China. Such a status quo in the China market brings us some important advantages. However,
we also hope such a situation can be improved. Otherwise, the development of our business
will be limited by the credit condition.
Regarding the successful ERP implementation, management does not expect it to provide a sustainable competitive advantage by itself. The competitive advantage must come from the way the group is using its ERP system rather than simply from the fact of having implemented one. A similar assessment holds for the e-commerce platform e-bridge since competitors, among others Ying Mai, have also created a platform which allows their customers to place orders online. In order to leverage its e-commerce platform, the group plans to extend its services in four steps:
1. Enable online-ordering for existing customers to increase efficiency (completed)
2. Attract new customers by offering online information, ordering, and business services
3. Separate distinct modules like logistics, customs, inventory management into menu-like
services (online transactions will not be important at this stage any longer)
4. Create independent supply chain management-platforms
Thus, both the ERP implementation and its e-commerce extension play a vital part in the group’s overall business strategy. Still, there are some doubts regarding the group’s ability to proceed through the next two steps of its e-commerce strategy, as Liu Yue Hui expresses:
We have already initiated the second phase plan for e-bridge, in order to enhance its model and functions. … [During the dot-com mania], we were afraid that our role as a distributor maybe substituted by someone else. We had expected that by 2005-2008 we would change from a distributor to a supply chain manager. We now see that we will act as an e-market operator, and we will survive and develop on our services. E-bridge is in the first stage of this model. During the past one or two years, it has performed up to our expectations. However, we are not sure about if it can evolve to the second and third stage. At least I do not see it in that way. Maybe we have to change this original plan.